What does the debt to equity ratio measure?

The debt to equity ratio measures the relative proportion of equity and debt used to finance a company's assets. It is a financial leverage ratio that indicates how much debt a company is using to finance its operations compared to the amount of equity provided by the shareholders. A higher ratio suggests that a company is more leveraged, meaning it relies more on borrowed funds to finance its assets, which can indicate higher risk. Conversely, a lower ratio indicates that a company is less dependent on debt and may be viewed as less risky by investors.

Understanding this ratio is crucial for investors and analysts as it provides insights into a company's capital structure, financial stability, and the level of risk involved in the company's financing decisions. It helps stakeholders assess whether the company is using a balanced approach or is overly reliant on debt financing, which could affect its long-term sustainability and financial health.